Good prospects ahead for stocks this year

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Good prospects ahead for stocks this year - JMMB
published: Friday | May 13, 2005

Dennise Williams, Staff Reporter


THE LOCAL stock market is likely to do well this year, says Glenford McLeish, managing director of JMMB Securities.

He was speaking at the Jamaica Money Market Brokers (JMMB) 'EconoMix 2005' seminar at the Knutsford Court Hotel on Wednesday. The seminar was concerned with the Jamaican and Trinidadian capital markets.

"Interest rates are historical lows," he said. "Although domestic interest costs consumes 48 per cent of tax revenues, the 2005/2006 balanced budget will reduce interest costs. The market then expects a narrowing of real return on fixed income investments."

Concerning corporate earnings he said, 'We expect good quarterly earnings to continue. Stock prices ultimately respond to good earnings, but 2005 will be challenging for financial sector stocks."

And finally, there is the mindset of investors. Mr. McLeish said, "We are concerned about the market psychology. One thing is the Dyollisation of the stock market. Will there be further aftershocks? We have to wait and see. And then is there an overabundance of speculation on initial public offerings?"

That said, Mr. McLeish pointed to some stocks that are expected to do well for the rest of 2005.

Pan Jam Investment Trust

Lascelles de Mercado

Caribbean Cement Company

Jamaica Broilers Group

Radio Jamaica Group

First Life Insurance Company

Jason Morris, investment research analyst at JMMB, then spoke about the possible macroeconomic scenarios.

"For the first quarter of 2005, growth as a percentage of gross domestic product could range from one per cent to one point two per cent. For the year, we could see numbers of 3.9 to 4.5 per cent.

"However, for inflation, we have already seen first quarter inflation of 13.2 per cent. The good news is that for the year-end, we could see inflation in the single digit of nine per cent at the low end or at 10.2 per cent at the high end. And interest rates which ended the first quarter of 2005 at 13.5 per cent could go as low 12.2 per cent by year end."

For investors interested in the Trinidad and Tobago Stock Exchange (TTSE), Jwala Rambarran spoke on the outlook for this market.

"We expect a moderate slowdown to returns of 20 to 25 per cent for 2005. And the value sectors in the Trinidadian markets are the following:

Banks such as FirstCaribbean International Bank

Non-bank finance sector such as stocks like Capital and Credit Merchant Bank and Sagicor

The manufacturing sector, specifically looking at Trinidad Cement

The conglomerate sector with stocks such as GraceKennedy.

These sectors are expected to perform well. And Jamaican-based stocks will continue to attract local investors and this interest may in turn attract foreign issuers."

And as strong as the Trinidadian economy is, there are still risks in the economy.

The first is the crime situation. Interestingly, Trinidad isexperien-cing at least one murder a day, and according to Mr. Rambarran, "some feel that we are approaching civil war." At this juncture, a member of the audience shouted, "That's the number we are working for!"

Mr. Rambarran continued, "Our social fabric remains under strain. The murders and the frequency of kidnapping are affecting business confidence. Many businessmen say they may pack up and do business from Miami."

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Re: Good prospects ahead for stocks this year

DB&G's Winner's Edge
published: Friday | May 13, 2005


MOST LISTED companies continue to enjoy increased profitability as indicated by the spate of impressive corporate results released during the course of the week.

Investment houses and manufacturing companies, in particular, appear to be the major beneficiaries of the economic stability seen in the local landscape. Although the market has been slow in reacting to this favourable development, it actually provides first-mover advantages to investors in search of long-term value.

CORPORATE NEWS

PCFS recorded $274 million in net profits for its quarter ending March 2005 compared with $147.6 million at the same interval last year but given the increase in shares in issue, EPS gained only 15.9%, moving from $0.44 to $0.51. Mayberry Investments posted $157.3 million, an increase of 80.9%, and CCMB returned $364.9 million, an increase of 32.63%, for the same period. CCMB subsequently passed a resolution to have a renounceable rights issue instead of the previously proposed non-renounceable rights issue in respect of the 200 million new shares to be issued by the company.

DB&G reported $795.4 million for the year ended March 2005, which represented an increase of 48%. GraceKennedy posted $569.7 million for the three months ended March 2005, up 15% on the comparative quarter of the prior year while Kingston Wharves grew its net profits 135% to $81.7 million for said period. Lascelles deMercado posted $1.22 billion in net profits for the six months ended March 2005, an increase of 190.6%. Goodyear Jamaica Ltd registered net profits of $23.3 million, up 4.4%, for its first quarter ended March 2005. Its next annual general meeting is scheduled for July 13, 2005 at the Jamaica Pegasus Hotel.

Jamaica Producers reported $8 million in net losses for its opening quarter of 2005, against $52 million in prior year. GHL's net profits slumped 73.4% to TT$141.5 million for the first three months of operations for 2005. The next annual general meeting of Hardware and Lumber Ltd. is scheduled for June 16, 2005.

COMPANY SPOTLIGHT: DESNOES AND GEDDES LTD (D&G)

Fuelled by robust export earnings and lower costs, D&G recorded $1.3 billion in net profits (without exceptional item) at the 9-month interval ended March 2005, an increase of 18.82%. While domestic volumes grew by a meagre 2%, exports climbed 39% amid strong support from the U.S. and Australian market as well as new shipments to the European market, which pushed net sales to $5.9
billion or 18.87% more than the matching result for 2004.

Costs of sales rose 25% to $3.3 billion but a 6.14% reduction in marketing expenditure and flat general, selling and administrative expenses allowed trading profit to reach $1.37 billion or 20% higher than the comparative period. D&G also gained $32.6 million in interest income, almost identical to the matching result of 2004, which further pushed pre-tax profits to $1.4 billion. The third quarter was particularly profitable for the Beer Company as net profits surged 67.2% from the general upturn in exports and improved control over costs.

Sustained restraint over marketing and other overheads will be critical to D&G's continued success. Sales are expected to continue increasing given the recovery in the local market as well as the company's strong presence in the USA market and increased penetration of other international markets. The new draught beer line will allow D&G to capitalise on the growth in local tourism industry and, together with the MAG-5 bottling line, should also contribute to the group's efficiency thrust. D&G is high dividend paying company and so investors are likely to benefit from its projected success. Investors should benefit from adding D&G to their investment portfolios.

RECOMMENDATIONS

The Winner's Edge recommends that investors add D&G, Pan Jam/First life, Courts, NCB, JBG and Goodyear to their investment portfolios. Lascelles, LOJ and Grace are also good long-term options.


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